Brinks Home Security (CFL) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-34088

Brink’s Home Security Holdings, Inc.

(Exact name of registrant as specified in its charter)

Virginia	80-0188977
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8880 Esters Boulevard, Irving, TX 75063

(Address of principal executive offices)

(Zip Code)

(972) 871-3500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at April 27, 2010
Common Stock, no par value	45,872,480

INDEX

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income and Comprehensive Income	4
Condensed Consolidated Statements of Shareholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to the Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	21
PART II—OTHER INFORMATION
Item 1. Legal Proceedings	22
Item 1a. Risk Factors	22
Item 6. Exhibits	22
Signatures	23

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BRINK’S HOME SECURITY HOLDINGS, INC.

and subsidiaries

Condensed Consolidated Balance Sheets

As of March 31, 2010 (unaudited) and December 31, 2009

($ in millions, except share data)

	March 31, 2010			Dec. 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	141.5		$	113.2
Certificates of deposit		5.0			5.0
Accounts receivable (net of allowance of $6.1 and $6.0 as of March 31, 2010 and December 31, 2009, respectively)		33.8			36.5
Prepaid expenses and other		8.4			11.4
Deferred income taxes		9.3			9.9
Total current assets		198.0			176.0
Property and equipment, net		717.8			710.1
Deferred subscriber acquisition costs, net		84.4			84.5
Total Assets	$	1,000.2		$	970.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	26.2		$	24.4
Payroll and other employee liabilities		12.5			12.6
Other accrued liabilities		26.0			20.4
Deferred revenue		47.1			46.6
Total current liabilities		111.8			104.0
Deferred revenue		181.4			182.2
Deferred income taxes		152.3			149.4
Other liabilities		11.2			11.6
Total Liabilities		456.7			447.2
Commitments and contingencies (Note 8)
Shareholders’ Equity:
Preferred stock, $10 par value, 2.0 million shares authorized, no shares issued		—			—
Common stock, no par value, 170.0 million shares authorized, 45.9 million shares issued and outstanding at March 31, 2010 and 45.8 million shares issued and outstanding at December 31, 2009		—			—
Additional paid-in capital		62.9			60.3
Retained earnings		482.3			464.8
Accumulated other comprehensive loss		(1.7	)		(1.7	)
Total shareholders’ equity		543.5			523.4
Total Liabilities and Shareholders’ Equity	$	1,000.2		$	970.6

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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BRINK’S HOME SECURITY HOLDINGS, INC.

and subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

For the Three Months Ended March 31, 2010 and 2009

(Unaudited)

($ in millions, except per share data)

	Three Months Ended March 31,
	2010		2009
Revenues	$	146.5	$	136.0
Expenses:
Cost of revenues		67.6		65.2
Selling, general and administrative expenses		50.2		45.5
Total expenses		117.8		110.7
Other operating income (expense), net		0.2		(0.2	)
Operating profit		28.9		25.1
Interest income, net		—		0.1
Income before income taxes		28.9		25.2
Provision for income taxes		11.4		10.0
Net income	$	17.5	$	15.2
Other comprehensive income (loss)		—		—
Comprehensive income	$	17.5	$	15.2
Earnings per common share (see Note 9 – Earnings per Share)
Basic	$	0.38	$	0.33
Diluted	$	0.38	$	0.33
Weighted average common shares outstanding (see Note 9 – Earnings per Share)
Basic		46.0		45.8
Diluted		46.3		45.9

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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BRINK’S HOME SECURITY HOLDINGS, INC.

and subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

For the Three Months Ended March 31, 2010

(Unaudited)

($ in millions)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total
Balance as of December 31, 2009	$	—	$	60.3	$	464.8	$	(1.7	)	$	523.4
Net income						17.5					17.5
Share-based compensation expense				1.8							1.8
Exercise of stock options		—		0.7							0.7
Excess tax benefit of stock options exercised		—		0.1							0.1
Balance as of March 31, 2010	$	—	$	62.9	$	482.3	$	(1.7	)	$	543.5

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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BRINK’S HOME SECURITY HOLDINGS, INC.

and subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2010 and 2009

(Unaudited)

($ in millions)

	Three Months Ended March 31,
	2010			2009
Cash flows from operating activities:
Net income	$	17.5		$	15.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23.7			22.2
Impairment charges from subscriber disconnects		15.5			14.0
Amortization of deferred revenue		(9.5	)		(9.3	)
Deferred income taxes		8.1			5.8
Share-based compensation		1.8			1.3
Provision for uncollectible accounts receivable		3.5			3.0
Other operating, net		(0.2	)		0.3
Excess tax benefit from exercise of stock options		(0.1	)		—
Change in operating assets and liabilities:
Accounts receivable		(0.8	)		(1.8	)
Accounts payable and accrued liabilities		5.3			10.4
Deferral of subscriber acquisition costs		(4.9	)		(5.5	)
Deferral of revenue from new subscribers		8.6			10.3
Prepaid expenses and other current assets		1.6			1.4
Other, net		(0.5	)		(0.7	)
Net cash provided by operating activities	$	69.6		$	66.6
Cash flows from investing activities:
Capital expenditures		(42.1	)		(47.2	)
Net cash used in investing activities	$	(42.1	)	$	(47.2	)
Cash flows from financing activities:
Proceeds from exercise of stock options		0.7			—
Excess tax benefit from exercise of stock options		0.1			—
Net cash used in financing activities	$	0.8		$	—
Cash and cash equivalents:
Net increase		28.3			19.4
Balance at beginning of period		113.2			63.6
Balance at end of period	$	141.5		$	83.0
Supplemental cash flow information:
Cash for income tax refund (payment), net	$	0.1		$	(0.8	)
Cash paid for interest	$	0.1		$	—

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Description of Business, Basis of Presentation and Significant Accounting Policies

Description of Business

Broadview Security, Inc. (“Broadview Security”) changed its name from Brink’s Home Security, Inc. on July 1, 2009. Broadview Security was incorporated in Delaware in 1983, and became a wholly-owned subsidiary of Brink’s Home Security Holdings, Inc. (“Holdings”), a Virginia corporation, on October 31, 2008, upon completion of the spin-off transaction described below. Holdings and its consolidated subsidiaries, including Broadview Security, are collectively referred to in this report as the “Company” or “Holdings,” unless otherwise indicated. Historically, the “Company” also refers to Broadview Security prior to the spin-off transaction.

The Company conducts business in one segment. Management evaluates performance and allocates resources based on cash flows and operating profit or loss of the Company as a whole. The Company markets, installs, services, and monitors security alarm systems for over 1.3 million customers in all 50 states and two Canadian provinces. Based on revenues, the Company believes it is the second largest provider of security alarm monitoring services for residential and commercial properties in North America. The Company’s primary customers are residents of single-family homes, which comprise approximately 93% of the Company’s subscriber base.

Recent Developments

On January 18, 2010, we announced that we signed a definitive agreement and plan of merger (“Merger Agreement”) to be merged into a wholly-owned subsidiary of Tyco International Ltd (“Tyco”) in a transaction valued at approximately $2.0 billion (the “Merger”). Under the terms of the Merger Agreement, for each share of our common stock outstanding, our shareholders will generally have the right to receive, at the election of the shareholder, (a) $42.50 in cash (subject to proration to reflect an overall cap on the amount of cash to be paid by Tyco), (b) a combination of $12.75 in cash and a fraction of a Tyco share equal to $29.75 divided by the volume weighted-average price of Tyco’s shares on the New York Stock Exchange (“NYSE”) during the 10-trading day period ending on the fifth full day prior to the closing date, subject to a collar between $32.97 and $40.29, or (c) Tyco shares equal to $42.50 divided by the volume weighted-average price detailed in (b) above, subject to the same collar. The Merger Agreement was subsequently amended to provide that, to the extent the closing of the Merger occurs prior to the distribution date of Tyco’s quarterly dividend, which is currently scheduled to be made on May 26, 2010, our shareholders who receive Tyco shares in the Merger will receive the applicable dividend for each Tyco share they receive in the Merger. The Merger is subject to customary closing conditions, various regulatory approvals and approval of our shareholders. We currently expect the Merger to close on or about May 14, 2010. Upon closing of the Merger, we anticipate that Broadview Security will be combined with Tyco’s ADT security business under the ADT brand.

History

On September 12, 2008, the Board of Directors of The Brink’s Company (“BCO”) approved the separation of BCO into two independent, publicly traded companies through the spin-off of the Company to shareholders of BCO. To effect the separation, BCO transferred all outstanding shares of Brink’s Home Security, Inc. through a series of transactions to Holdings, another wholly-owned subsidiary of BCO, which prior to these transactions had no independent assets or operations, and distributed the shares of Holdings to BCO’s shareholders.

Distribution of Holdings’ common stock to the stockholders of BCO occurred on October 31, 2008, at a ratio of one share of Holdings’ common stock for each share of BCO’s common stock held by each such holder as of the record date of October 21, 2008 (“the Spin-off”). Immediately following the Spin-off, Holdings’ common stock began trading “regular way” on the New York Stock Exchange under the symbol “CFL,” reflecting its corporate mission of creating “Customers For Life.” See Note 2 – Transactions with Related Parties for a description of transition services and other agreements entered into between the Company and BCO.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. The Company believes that the

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disclosures made are adequate to make the information not misleading. All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s annual report for the period ended December 31, 2009, filed with the SEC on February 24, 2010 and as amended on April 6, 2010 (“Form 10-K”).

Critical Accounting Policies

The Company has identified the following policies as critical accounting policies: revenue recognition, security systems capitalization, deferred subscriber acquisition costs, long-lived asset valuation, useful lives of security systems, allowance for doubtful accounts, and income taxes. These accounting policies are discussed in greater detail in the Company’s Form 10-K.

New Accounting Standards

In September 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for the accounting for revenue arrangements with multiple deliverables. The guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific evidence nor third-party evidence is available. The guidance requires arrangements under which multiple revenue generating activities to be performed be allocated at inception. The residual method under the existing accounting guidance has been eliminated. The guidance expands the disclosure requirements related to multiple-deliverable revenue arrangements. The guidance becomes effective for revenue arrangements entered into or materially modified beginning in fiscal 2011, with early adoption permitted. The guidance applies on a prospective basis unless the Company specifically elects to apply the guidance retrospectively. The Company does not expect that the guidance will have a material impact on its financial position, results of operations or cash flows.

Note 2 – Transactions with Related Parties

Agreements Related to the Spin-off from BCO

Following the Spin-off, the Company has operated independently from BCO, and has no ownership interest in BCO. As a part of the Spin-off, the Company entered into certain agreements, including the Tax Matters Agreement (“TMA”) and the Brand Licensing Agreement. In order to govern the ongoing relationships between the Company and BCO after the Spin-off and to provide mechanisms for an orderly transition, the Company and BCO agreed to certain non-compete and non-solicitation arrangements. Also, the Company and BCO agreed to indemnify each other against certain liabilities arising from their respective businesses.

Brand License Agreement

Pursuant to the Brand Licensing Agreement, BCO allows the Company to use trademarks for certain products and services for a royalty fee approximately 1.25% of revenue. The Brand Licensing Agreement is effective until the earlier of October 31, 2011, or when the Company ceases active use of the trademarks. Royalty expense was $1.8 million and $1.6 million for the three months ended March 31, 2010 and 2009, respectively, and is included in cost of revenues.

Note 3 – Property and Equipment, net

The following table presents the Company’s property and equipment, net:

(In millions)	March 31, 2010			Dec. 31, 2009
Land	$	2.5		$	2.5
Buildings		15.5			15.5
Leasehold improvements		6.5			6.1
Security systems		1,031.9			1,012.5
Capitalized software		22.4			21.8
Computers and office equipment		52.8			51.9
		1,131.6			1,110.3
Accumulated depreciation and amortization		(413.8	)		(400.2	)
Property and equipment, net	$	717.8		$	710.1

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The following table presents depreciation and amortization expense:

	Three Months Ended March 31,
(In millions)	2010		2009
Property and equipment	$	20.8	$	19.2
Deferred subscriber acquisition costs		2.9		3.0
Total Depreciation and Amortization	$	23.7	$	22.2

Note 4 – Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates calculated separately from the effect of significant, infrequent, or unusual items. The Company’s effective income tax rate for the three months ended March 31, 2010 was 39.4% compared with 39.7% in the same period last year.

The TMA provides that the Company is required to indemnify BCO and its affiliates against all tax-related liabilities caused by the failure of the Spin-off to qualify for tax-free treatment for United States federal income tax purposes to the extent these liabilities arise as a result of any action taken by Holdings or any of Holdings’ subsidiaries following the Spin-off or otherwise result from any breach of any covenant under the TMA or any other agreement entered into by the Company in connection with the Spin-off. Though valid as between the parties, the TMA is not binding on the Internal Revenue Service. In connection with the Merger, the Company and Tyco entered into an agreement with BCO whereby BCO consented to the assignment of the TMA to Tyco.

Note 5 – Share-Based Compensation Plans

On February 19, 2010, the Company granted stock options under the Company’s 2008 Equity Incentive Plan to purchase 209,000 shares of the Company’s common stock to certain employees. The exercise price for the stock option grants was $41.23, which was equal to the average high and low of the Company’s common stock on the New York Stock Exchange on the grant date. The stock options granted generally vest over a three year annual graded schedule. The grant date fair value of these stock options approximated $3.0 million.

Share-based compensation expense is included in selling, general and administrative expense and was $1.8 million and $1.3 million for the three months ended March 31 2010 and 2009, respectively.

Note 6 – Credit Agreement

On October 21, 2008, the Company entered into a credit agreement (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) that provides for a four-year unsecured $75 million revolving credit facility with a syndicate of lenders led by JPMorgan Chase Bank, N.A. as the administrative agent (“Credit Facility”). The Company has the option, under certain conditions, to increase the commitment by up to $50 million, not to exceed $125 million in the aggregate. The Credit Facility is available for general corporate purposes, including the issuance of letters of credit of up to $15 million.

The Credit Agreement includes a requirement that the Company maintain: (i) a Leverage Ratio (as defined in the Credit Agreement) of no more than 2.5 to 1.0 as of the last day of each fiscal quarter, measured on a trailing four-quarters basis, and (ii) a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of at least 2.0 to 1.0 for the same trailing four quarter period. At March 31, 2010, the Company is in compliance with the requirements of the Credit Agreement.

The pricing on the Credit Facility is based on, generally at the Company’s discretion, the greater of the Prime Rate or the Federal Funds Rate plus one-half of one percent, or LIBOR, plus an adjustment based on the Company’s leverage ratio, as defined in the Credit Agreement. The Company is charged a commitment fee between 0.25% and 0.35% on the unused portion of the facility, tiered based on the Company’s leverage ratio.

As of March 31, 2010, no funds have been drawn under the Credit Facility, but the Company has used the Credit Facility to

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issue letters of credit totaling $4.3 million.

In order for us to comply with certain operating covenants included in the Merger Agreement, and as contemplated by the Merger Agreement, we entered into an amendment and received a limited consent and waiver to the Credit Agreement.

Note 7 – Geographic Information

Revenues by country for the three months ended March 31, 2010 and 2009 were as follows:

	Three Months Ended March  31,
(In millions)	2010		2009
United States	$	144.4	$	134.3
Canada		2.1		1.7
Total	$	146.5	$	136.0

No single customer represents more than 10% of total revenue.

As of March 31, 2010 and December 31, 2009, long-lived assets, consisting of property and equipment, net, and deferred charges by country were as follows:

(In millions)	March 31, 2010		December 31, 2009
United States	$	788.3	$	780.9
Canada		13.9		13.7
Total	$	802.2	$	794.6

Net liabilities related to the Canadian operations totaled $0.1 million as of March 31, 2010 and $0.6 million at December 31, 2009.

Note 8 – Commitments and Contingencies

Joint and Several Liability with BCO

Under the Coal Industry Retiree Health Benefit Act of 1992, as amended (the “Health Benefit Act”), BCO and its majority-owned subsidiaries at July 20, 1992, including certain material subsidiaries of the Company, are jointly and severally liable with certain of BCO’s other current and former subsidiaries for health care coverage obligations provided for by the Health Benefit Act. A Voluntary Employees’ Beneficiary Associate trust has been established by BCO to pay for these liabilities, although the trust may not have sufficient funds to satisfy the obligations. The Company entered into an agreement with BCO in which BCO agreed to indemnify the Company for any and all liabilities and expenses related to BCO’s former coal operations, including any health care coverage obligations.

Legal Proceedings

The Company is involved in various lawsuits and claims in the ordinary course of business. The Company has recorded accruals for losses that are considered probable and reasonably estimable associated with these matters. The Company believes that the ultimate disposition of these matters will not have a material adverse effect on its liquidity or financial position; however, losses, or changes in estimates of losses, from these matters may result in income or expense in any one accounting period that is material in comparison to the earnings of that period.

In April 2009, a Michigan state circuit court jury rendered a verdict against the Company for $4.2 million pertaining to claims made by a terminated employee of the Company. On July 7, 2009, the trial court entered judgment in favor of the plaintiff for $4.7 million. This amount included approximately $0.5 million in pre-judgment interest and attorney fees. After post-trial proceedings, on September 25, 2009, the trial court entered a revised judgment in the amount of $3.5 million. The amount of the revised judgment has been included in other accrued liabilities as of March 31, 2010. On October 16, 2009, the Company filed an appeal seeking reversal of the judgment or in the alternative a new trial, based on various alleged points of error by the trial court. In connection with the appeal, the trial court ordered a stay of execution on the judgment which requires the Company to post an appeal bond. The Company has filed its initial appeal brief and a reply to the plaintiff’s brief but no date has yet been set for oral argument.

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Note 9 – Earnings per Share

Basic earnings per share (“EPS”) was computed by dividing net income by the weighted average number of common shares outstanding for the three months ended March 31, 2010 and 2009. Diluted EPS was calculated in a similar manner but included the dilutive effect of stock options and restricted stock units outstanding for the respective periods. To the extent these securities were anti-dilutive, they were excluded from the calculation of diluted earnings per share. For the three months ended March 31, 2010 and 2009, 0.1 million and 1.2 million shares were anti-dilutive, respectively.

(In millions, except EPS)	Three Months Ended March 31,
	2010		2009
Earnings:
Net income	$	17.5	$	15.2
Shares:
Weighted average common shares outstanding		46.0		45.8
Adjustment for assumed dilution — stock options and restricted stock awards		0.3		0.1
Weighted average common shares outstanding and common stock equivalents		46.3		45.9
Earnings per share:
Basic	$	0.38	$	0.33
Diluted		0.38		0.33

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Statements preceded by, followed by or that otherwise include the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “prospects,” “outlook,” and similar words or expressions, or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. These forward looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any anticipated results, performance or achievements. Except as required by law, we disclaim any intention, and undertake no obligation, to revise any forward-looking statements, whether as a result of new information, a future event, or otherwise. These risks, uncertainties and contingencies, many of which are beyond our control, include, but are not limited to risks related to the Merger, risks inherent in the Spin-off from our former parent corporation, the demand for our products and services, the ability to identify and execute further cost and operational improvements and efficiencies in our core business, the actions of competitors, our ability to successfully build and market a new brand, our ability to identify strategic opportunities and integrate them successfully, our ability to maintain subscriber growth, the number of household moves, the level of home sales or new home construction, potential instability in housing credit markets, our ability to cost-effectively develop or incorporate new systems or technology in a timely manner, our ability to balance the cost of acquiring customers with the profit from serving existing customers, our ability to keep disconnect rates relatively low, the availability and cost of capital, and general business conditions. For additional risks and uncertainties that could impact our forward-looking statements, please see Part II Item 1A, “Risk Factors” herein, and also the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the U.S. Securities Exchange Commission (“SEC”), on February 24, 2010 and amended on Form 10-K/A filed on April 6, 2010 (“Form 10-K”), which includes, but is not limited to, the discussion under “Risk Factors” therein, which you may view at www.sec.gov.

General

The following discussion, which presents the results of Brink’s Home Security Holdings, Inc. and its consolidated subsidiaries, should be read in conjunction with the accompanying unaudited condensed consolidated interim financial statements and notes thereto at March 31, 2010 and December 31, 2009 and the three months ended March 31, 2010 and 2009.

As used in this Report, (a) references to “Holdings,” “Company,” “we,” “us,” and “our” refer to Brink’s Home Security Holdings, Inc. and its consolidated subsidiaries, including Broadview Security, Inc. (“Broadview Security,” formerly named Brink’s Home Security, Inc.), after the spin-off transaction described below, and (b) references to the “Company” on a historical basis, prior to the spin-off transaction, refer to Broadview Security and its consolidated subsidiaries, in each case unless the context requires otherwise.

This discussion is intended to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, how operating results affect our financial condition and results of our operations of the Company as a whole, and how certain accounting principles and estimates affect our financial statements. Unless otherwise indicated, all references to earnings per share (“EPS”) are on a diluted basis.

Recent Developments

On January 18, 2010, we signed a definitive agreement and plan of merger (“Merger Agreement”) to be merged into a wholly-owned subsidiary of Tyco International Ltd (“Tyco”) in a transaction valued at approximately $2.0 billion (the “Merger”). The Merger is subject to customary closing conditions, various regulatory approvals and approval of our shareholders. We currently expect the Merger to close on or about May 14, 2010. Upon closing of the Merger, we anticipate that Broadview Security will be combined with Tyco’s ADT security business under the ADT brand. This pending transaction may significantly impact our operations and continuation of historical trends in future periods as it becomes more difficult to reasonably estimate trends affecting our company, capital resource needs, and other items.

History

On September 12, 2008, the Board of Directors of The Brink’s Company (“BCO”) approved the separation of BCO into two independent, publicly traded companies through the spin-off of the Company to shareholders of BCO (the “Spin-off”). To

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effect the Spin-off, BCO transferred all outstanding shares of Brink’s Home Security, Inc. to Holdings, another wholly-owned subsidiary of BCO, through a series of transactions pursuant to a Separation and Distribution Agreement between BCO and Holdings. On October 31, 2008, BCO distributed all of the shares of Holdings to the stockholders of BCO at a ratio of one share of Holdings common stock for each share of BCO common stock held by each such holder as of the record date of October 21, 2008. On November 3, 2008, after completion of the Spin-off, our stock began trading “regular way” as an independent public company on the New York Stock Exchange under the symbol “CFL”, reflecting our corporate mission of creating “Customers For Life.”

As a condition of the Spin-off, we were required to change the name of the Company prior to October 31, 2011. We announced Broadview Security as our new brand name on June 30, 2009 and immediately began the process to transition away from our heritage name. The change was a name change only. The corporate structure and management of the Company did not change.

We began marketing efforts in July 2009 to promote awareness of the new brand through advertisements via television media, internet, direct mail, yellow pages, and messaging to our existing subscriber base (“Brand Introduction”). The Brand Introduction also includes costs to create the new brand, convert building signage, re-decal our vehicle fleet, issue new technician uniforms, change customer yard signs, and other similar brand conversion activities.

Overview

We provide monitored security alarm services in North America for owner-occupied single-family residences and commercial properties. We typically install and own the on-site security alarm systems and charge fees to monitor and service the systems. We attribute our success to our focus on quality service, customer retention, and a disciplined approach to growth. We believe our business is a premium provider of services in the markets that we serve.

We have grown consistently over the past several years due to our ability to attract and retain customers by providing quality services while operating as efficiently as possible. Revenues are fairly predictable as most monitoring service revenues are governed by initial three-year monitoring contracts that generally include recurring one-year renewal clauses. Over the past three years, recurring revenues have been approximately 90% of total revenues. Our primary customers are residents of single-family homes which comprise approximately 93% of our subscriber base.

For further information regarding our business, industry trends, and risks and uncertainties, refer to our Form 10-K.

Key Performance Indicators

The success of our business model depends on recurring contractual revenues and cash flows from our ongoing subscriber base. Key drivers of recurring contractual revenues are subscriber growth and continuous focus on existing customer retention. It is important to minimize subscriber cancellations as the majority of costs associated with a subscriber are incurred at installation. It currently takes approximately four years to recover our initial cash investment in a new subscriber. We use some of the cash flows from the ongoing subscriber base to finance the costs necessary to grow the subscriber base. We continually balance the current cost of growth with the future benefit of recurring contractual revenues. The recurring nature of our net operating cash flows tends to buffer but not eliminate the impact of negative trends in the general economy. In evaluating our results, we review the following key performance indicators:

Monthly Recurring Revenue (“MRR”) is a non-GAAP measure used to evaluate performance. MRR measures the amount of recurring revenues from subscriber fees and is calculated based on the number of subscribers at period end multiplied by the average fee per subscriber received in the last month of the period for contracted monitoring and maintenance services. On page 18, MRR is described in greater detail and is accompanied by a reconciliation of MRR to revenue, its closest GAAP counterpart.

Subscriber Growth — The growth of our subscriber base is crucial to drive MRR expansion and to leverage our costs of operations. Despite a challenging housing market and generally weak economic conditions, our ending subscriber base has continued to grow as presented in the table on page 17.

Customer Retention — Success of our economic model is highly dependent on customer retention. We believe our disconnect rate is the lowest among the major monitored security service companies. Our low disconnect rate is driven in part by our discipline in acquiring new customers with acceptable credit backgrounds and by providing high quality equipment, installation, monitoring, and customer service.

Subscriber disconnects stem from three primary sources including account write-offs, household and business moves, and

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disconnects due to customer initiated cancellations for reasons other than moves. Another factor that can from time to time increase the disconnect rate is cancellation of multi-family contracts, as they can contain numerous individual subscriber sites.

Profit from Recurring Services — Profit from recurring services reflects the monthly monitoring and service fees generated from the existing subscriber base, including the amortization of deferred revenues, net of general and administrative expenses, including royalty expense. This measure excludes the results of operations related to investment in new subscribers, a separate non-GAAP measure defined below. Non-cash impairment charges resulting from subscriber contract cancellations and depreciation and amortization expenses, including the amortization of deferred subscriber acquisition costs, are also charged to recurring services. Profit from recurring services is affected by the size of the subscriber base, the amount of operational costs, depreciation, the level of subscriber cancellations, and changes in the average monthly monitoring fee per subscriber. Profit from recurring services is considered to be an important non-GAAP component of our operating profit. This component of operating profit allows investors and others to understand the amount of operating income generated from active security systems. See the “Reconciliation of Non-GAAP Measures” section for the reconciliation of profit from recurring services to its closest GAAP counterpart, net income.

Investment in New Subscribers — Investment in new subscribers is the net expense incurred to add to the subscriber base every year, which is primarily marketing and selling expenses including Brand Introduction costs, net of security system asset capitalization, and net of sales acquisition cost deferrals. The amount of the investment in new subscribers charged to income may be influenced by several factors, including the volume of new subscriber installations and the level of costs incurred to attract new subscribers, which can vary by customer acquisition channel. As a result, increases in the rate of investment (the addition of new subscribers) may have a negative effect on current operating profit, but a positive impact on long-term operating profit, cash flow, and economic value. Investment in new subscribers is considered to be an important non-GAAP component of our operating profit. This component of operating profit allows investors and others to understand the amount of net expenses associated with the installation of new subscribers. See the “Reconciliation of Non-GAAP Measures” section for the reconciliation of investment in new subscribers to its closest GAAP counterpart, net income.

EBITDA from Recurring Services —EBITDA from recurring services is a non-GAAP measure that we use to convey profits generated from the subscriber base adjusted for certain non-cash items including asset impairment charges, depreciation of fixed assets, amortization of deferred charges, and amortization of deferred revenue. We believe EBITDA from Recurring Services is useful to provide investors with information about operating profits, adjusted for significant non-cash items, generated from the existing customer base, which can be used to support the investment in new subscribers portion of our operations. This measure excludes the results of operations related to investment in new subscribers, a separate non-GAAP measure defined above. See the “Reconciliation of Non-GAAP Measures” section for the reconciliation of EBITDA from recurring services to its closest GAAP counterpart, net income.

Adjusted Cash Invested in New Subscribers — Adjusted cash invested in new subscribers is a non-GAAP measure that we use to convey the total cash invested to acquire new subscribers or move existing subscribers without regard to the accounting treatment of the various cash components. It is comprised of primarily capitalized security system costs, marketing and selling expenses, and deferred subscriber acquisition costs (current year payments) less deferred revenue from new subscribers (current year receipts). This measure is adjusted to exclude costs related to the Brand Introduction. See the “Reconciliation of Non-GAAP Measures” section for the reconciliation of adjusted cash invested in new subscribers to its closest GAAP counterpart, net income.

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Summary of Operating Results and Key Performance Indicators

($ in millions, except EPS, disconnect rate, subscriber growth rate and subscriber data)

	Three Months Ended March 31,
	2010			2009
Revenues	$	146.5		$	136.0
Cost of revenues		67.6			65.2
Selling, general and administrative expenses		50.2			45.5
Total costs and expenses		117.8			110.7
Other operating income (expense), net		0.2			(0.2	)
Operating profit		28.9			25.1
Interest income, net		—			0.1
Income before income taxes		28.9			25.2
Income tax expense		11.4			10.0
Net income	$	17.5		$	15.2
Diluted EPS	$	0.38		$	0.33
Weighted average shares assuming dilution(a)		46.3			45.9
Key Performance Indicators
Monthly recurring revenue(b)		44.8			41.5
Subscriber growth
Ending number of subscribers (in thousands)		1,369.4			1,321.3
Ending subscriber base growth (percentage)(c)		3.6			5.7
Average number of subscribers (in thousands)		1,364.1			1,310.8
Average subscriber growth rate (percentage)		4.1			6.0
Customer retention
Disconnect rate (percentage)(d)		7.3			7.1
Profit from recurring services(e)	$	59.5		$	51.5
Investment in new subscribers(f)	$	(30.6	)	$	(26.4	)
EBITDA from recurring services(g)	$	89.2		$	78.4
Adjusted cash invested in new subscribers(h)	$	(59.0	)	$	(62.8	)

(a) See Note 9 – Earnings per Share for explanation of the calculation of diluted earnings per share.

(b) Monthly recurring revenue (“MRR”), a non-GAAP measure, is calculated based on the number of subscribers at period end multiplied by the average fee per subscriber earned in the last month of the period for contractual monitoring and maintenance services. This measure is reconciled below under the caption “Reconciliation of Non-GAAP Measures.”

(c) Calculated based on period ending subscribers.

(d) Calculated as a ratio, the numerator of which is customer cancellations, on an annualized basis, and the denominator of which is the average number of customers during the period. Customer relocations, reactivations, and dealer charge backs of contract cancellations are excluded from the calculation.

(e) Profit from recurring services, a non-GAAP measure, reflects operating profit generated from the existing subscriber base including the amortization of deferred revenues and deferred acquisition costs as these amounts are recognized over time and are unrelated to generating new subscribers in the current period as discussed under the caption “Key Performance Measures — Profit from Recurring Services.” This measure is reconciled below in the “Reconciliation of Non-GAAP Measures” section.

(f) Investment in new subscribers, a non-GAAP measure, is net expense (primarily marketing and selling expenses, including Brand Introduction costs) incurred to add new subscribers to the subscriber base as discussed under the caption “Key Performance Measures — Investment in New Subscribers.” This measure is reconciled below in the “Reconciliation of Non-GAAP Measures” section.

(g) EBITDA from recurring services is a non-GAAP measure that we use to convey profits generated from the subscriber base adjusted for certain non-cash items including asset impairment charges, depreciation of fixed assets, amortization of deferred charges, and amortization of deferred revenue. This measure is reconciled below in the “Reconciliation of Non-GAAP Measures” section.

(h) Adjusted cash invested in new subscribers, a non-GAAP measure, represents cash used to acquire new subscribers during the period and excludes costs related to the Brand Introduction. This measure is reconciled below in the “Reconciliation of Non-GAAP Measures” section.

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Three Months Ended March 31, 2010 compared to the Three Months Ended March 31, 2009

Revenues

Revenues increased $10.5 million or 7.7% to $146.5 million in the three months ended March 31, 2010 from $136.0 million in the comparable prior period. The increase was primarily due to 4.1% growth in the average subscriber base and a 4.2% increase in MRR per ending subscriber over the comparable prior period end.

Cost of Revenues

Cost of revenues increased $2.4 million or 3.7% to $67.6 million in the three months ended March 31, 2010 from $65.2 million in the comparable prior period. The increase was primarily due to $1.5 million increase in impairment charges related to subscriber disconnects and an increase in costs to support the larger subscriber base. Cost of revenues was 46.1% of revenues in the three months ended March 31, 2010 and 47.9% in the comparable prior period.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) increased by $4.7 million or 10.3% to $50.2 million in the three months ended March 31, 2010 from $45.5 million in the comparable prior period. The increase was primarily due to $6.8 million increase in Brand Introduction costs and incremental costs to support the larger subscriber base. These increases were partially offset by $4.0 million unfavorable adjustment to the legal contingency accrual in the prior period (see Note 8 – Commitments and Contingencies for further discussion). SG&A was 34.3% of revenues in the three months ended March 31, 2010 and 33.5% in the prior comparable period. Excluding Brand Introduction costs, SG&A would have been $42.3 million and $44.4 million or 28.9% and 32.6% of revenues in the three months ended March 31, 2010 and 2009, respectively. Refer to “Reconciliation of Non-GAAP Measures” section for further analysis on the impact of Brand Introduction costs on operating profit.

Operating Profit

Operating profit increased $3.8 million or 15.1% to $28.9 million in the three months ended March 31, 2010 from $25.1 million in the prior comparable period, driven primarily by higher profits from recurring services on our larger subscriber base and an unfavorable adjustment to the legal contingency accrual in the prior period. These increases in operating profit were partially offset by increased Brand Introduction costs. Operating margin was 19.7% in the three months ended March 31, 2010 compared to 18.5% in the three months ended March 31, 2009. Excluding Brand Introduction costs, operating profit would have been $36.8 million and $26.2 million or 25.1% and 19.3% of revenue for the three months ended March 31, 2010 and 2009, respectively. Refer to “Reconciliation of Non-GAAP Measures” section for further analysis on the impact of Brand Introduction costs on operating profit.

Provision for Income Taxes

Provision for income taxes in the three months ended March 31, 2010 increased by $1.4 million to $11.4 million from $10.0 million as compared to the prior year comparable period. The change is due to the increase in income before income taxes, partially offset by a decrease in the effective tax rate to 39.4% in the current quarter from 39.7% in the prior comparable period.

Net Income and Earnings Per Share

In the three months ended March 31, 2010, we reported net income of $17.5 million, or $0.38 per diluted share compared to $15.2 million or $0.33 per diluted share for the prior comparable period. As previously discussed, the increase was primarily due to higher net profit from the larger subscriber base and an unfavorable adjustment to the legal contingency accrual in the prior period. These increases were partially offset by increased Brand Introduction costs. Refer to “Reconciliation of Non-GAAP Measures” section for further analysis on the impact of Brand Introduction costs on net income.

Monthly Recurring Revenue

MRR increased $3.3 million or 8.0% as of March 31, 2010 from the prior comparable period end primarily as the result of a 3.6% increase in the size of the ending subscriber base and a 4.2% increase in average recurring revenue per ending subscriber. The increase in MRR per subscriber is due to adding new subscribers at higher monthly monitoring rates, price increases, disconnecting customers having generally lower monthly recurring rates, and growth in additional chargeable services provided to both new and existing subscribers.

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Subscriber Growth

During the three months ended March 31, 2010, the subscriber base grew by 10,400 subscribers, achieving ending subscriber growth of 3.6% over the prior comparable period ending subscriber base. The subscriber base grew across most customer acquisition channels, with growth highest in the authorized dealer subscriber acquisition channel.

Disconnect Rate

The annualized disconnect rate for the three months ended March 31, 2010 increased to 7.3% from 7.1% in the comparable prior period, driven primarily by an increase in customer requested cancellations and customer moves, partially offset by a decrease in customer disconnects associated with account write-offs. The disconnect rate calculated on a trailing twelve month basis as of March 31, 2010 was 8.2% compared to 7.8% calculated on a comparable basis for the prior year period.

Profit from Recurring Services

Profit from recurring services increased $8.0 million or 15.5% to $59.5 million during the three months ended March 31, 2010 from $51.5 million in the comparable prior period. The increase was due primarily to higher net profits from our larger subscriber base and an unfavorable adjustment to the legal accrual in the prior period.

Investment in New Subscribers

Investment in new subscribers increased $4.2 million to $30.6 million for the three months ended March 31, 2010 from $26.4 million in the prior year comparable period. The increase was primarily the result of $6.8 million additional Brand Introduction costs for the three months ended March 31, 2010 compared to the prior period.

EBITDA from Recurring Services

EBITDA from recurring services increased $10.8 million or 13.8% to $89.2 million in the three months ended March 31, 2010 from $78.4 million in the prior year comparable period. The increase was primarily the result of subscriber base growth, higher monthly recurring revenue and lower legal expense.

Adjusted Cash Invested in New Subscribers

Adjusted cash invested in new subscribers decreased $3.8 million or 6.1% to $59.0 million in the three months ended March 31, 2010 from $62.8 million in the prior year comparable period. The decrease was primarily due to an 18.1% decrease in the number of installations over prior period. This decrease was partially offset by higher materials costs and an increase in cost of accounts acquired from our authorized dealers. Materials costs increased due primarily to an increase in the installation of wireless product.

Subscriber Activity

	Three Months Ended March 31,				% Change
(Subscriber activity in thousands)	2010		2009
Number of subscribers:
Beginning of period	1,359.0		1,301.6		4.4
Installations(a)	35.2		43.0		(18.1	)
Disconnects(a),(b)	(24.8	)	(23.3	)	6.4
End of period	1,369.4		1,321.3		3.6
Average number of subscribers	1,364.1		1,310.8		4.1
Annualized disconnect rate(c)	7.3		7.1
Disconnect rate, excluding multifamily disconnects(d)	7.3		7.1
Twelve month trailing disconnect rate(e)	8.2		7.8

(a) Customers who move from one location and then initiate a new monitoring agreement at a new location, totaling 4,600 and 4,500 for the three months ended March 31, 2010 and 2009, respectively, are not included in either installations or disconnects. Dealer accounts cancelled and charged back to the dealer during the specified contract term are excluded from installations and disconnects.

(b) Inactive sites that are returned to active service, which we call system takeovers, reduce disconnects and were 6,100 and 5,900 for the three months ended March 31, 2010 and 2009, respectively.

(c) The annualized disconnect rate is a ratio. The numerator is the number of customer cancellations during the period multiplied by the appropriate ratio for the three month period. The denominator is the average number of customers during the period. The gross number of customer cancellations is reduced for customers who move from one location and then initiate a new monitoring agreement at a new location, disconnected

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accounts charged back to the dealers because the customers cancelled service during the specified contractual term, and inactive sites that are returned to active service during the period.

(d) Disconnect rate as defined in Note (c), excluding multifamily account cancellations.

(e) Twelve month trailing disconnect rate is a ratio. The numerator is the aggregate number of net customer cancellations during the preceding four fiscal quarters, including multi-family account cancellations, and the denominator is the average number of customers during the same period.

Reconciliation of Non-GAAP Measures

Operating Results Adjusted for Brand Introduction Costs

For comparability of financial results, we present operating results adjusted by Brand Introduction costs for the three months ended March 31, 2010 and 2009. This supplemental non-GAAP information should be reviewed in conjunction with our historical condensed consolidated statements of income.

The table below reconciles operating results adjusted by Brand Introduction costs to GAAP operating results for the three months ended March 31, 2010 and 2009.

	Three Months Ended March 31,
(In millions, except EPS)	2010			2009
Non-GAAP Operating Profit	$	36.8		$	26.2
Brand Introduction		(7.9	)		(1.1	)
GAAP Operating Profit	$	28.9		$	25.1
Non-GAAP Net Income	$	22.3		$	15.9
Brand Introduction		(7.9	)		(1.1	)
Tax effect of adjustments		3.1			0.4
GAAP Net Income	$	17.5		$	15.2
Non-GAAP Earnings per share — diluted	$	0.48		$	0.35
Brand Introduction		(0.17	)		(0.02	)
Tax effect of adjustments		0.07			—
GAAP earnings per share — diluted	$	0.38		$	0.33

Monthly Recurring Revenues

MRR is a non-GAAP measure used to evaluate performance. We believe the presentation of MRR is useful to investors because the measure is widely used in the industry to assess the amount of recurring revenues from subscriber, monitoring, and other service fees. This supplemental non-GAAP information should be reviewed in conjunction with our historical consolidated statements of income.

The table below reconciles monthly recurring revenues, a non-GAAP measure, to revenues, its closest GAAP counterpart.

	March 31,
(In millions)	2010		2009
Monthly recurring revenues (“MRR”)(a)	$	44.8	$	41.5
Amounts excluded from MRR:
Amortization of deferred revenue(b)		3.3		3.2
Other revenues(c)		1.2		1.0
Revenues on a GAAP basis:
March		49.3		45.7
January — February		97.2		90.3
Reported GAAP January — March Revenue	$	146.5	$	136.0

(a) MRR is calculated based on the number of subscribers at period end multiplied by the average fee per subscriber received in the last month of the period for contracted monitoring and maintenance services.

(b) Includes amortization of deferred revenue related to active subscriber accounts and recognition of deferred revenue related to subscriber accounts that disconnect.

(c) Other revenues are not pursuant to monthly contractual billings, including but not limited to revenue from commercial product sales, on-call service revenue, and pre-wire and trim-out revenue from the Builder channel. Other revenues also include terminated contract penalty billings for breached contracts, pass-through revenue (alarm permit fees, false alarm fines, etc.), and partial month revenues recognized from customers who disconnected

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during the last month of the period and are therefore not included in MRR. This amount is reduced for adjustments recorded against revenue (primarily customer goodwill credits and other billing adjustments), and for the amount included in MRR for new customers added during the last month of the period for those portions of the month for which revenues were not recognized for such customers.

Profit from Recurring Services and Investment in New Subscribers

Profit from recurring services and investment in new subscribers are non-GAAP measures used to evaluate performance. We believe the presentation of these measures is useful to investors as it reflects the ongoing profit generated from the subscriber base and the net expenses incurred to acquire new subscribers. This supplemental non-GAAP information should be reviewed in conjunction with our historical consolidated statements of income.

The table below reconciles profit from recurring services and investment in new subscribers for the three months ended March 31, 2010 and 2009, to net income, their closest GAAP counterpart.

	Three Months Ended March 31,
(In millions)	2010			2009
Profit from recurring services(a)	$	59.5		$	51.5
Investment in new subscribers(b)		(30.6	)		(26.4	)
Interest income, net		—			0.1
Provision for income taxes		(11.4	)		(10.0	)
Net income	$	17.5		$	15.2

(a) Reflects operating profit generated from the existing subscriber base including the amortization of deferred revenues and deferred acquisition costs as these amounts are recognized over time and are unrelated to generating new subscribers in the current period.

(b) Primarily marketing and selling expenses including the Brand Introduction costs of $7.9 million and $1.1 million for the three months ended March 31, 2010 and 2009, respectively, net of the deferral of subscriber acquisition costs (primarily a portion of sales commissions and related costs) incurred in the acquisition of new subscribers. This metric also includes operating expenses related to our new housing construction customer acquisition channel (“Builder”), formerly referred to as Brink’s Home Technologies.

EBITDA from Recurring Services and Adjusted Cash Invested in New Subscribers

EBITDA from recurring services and adjusted cash invested in new subscribers are measures used to monitor our operating performance. This supplemental non-GAAP information should be reviewed in conjunction with our historical consolidated statements of income and cash flow.

The table below reconciles EBITDA from recurring services and adjusted cash invested in new subscribers for the three months ended March 31, 2010 and 2009, to net income, their closest GAAP counterpart.

	Three Months Ended March 31,
(In millions)	2010			2009
EBITDA from recurring services	$	89.2		$	78.4
Depreciation and amortization		(23.7	)		(22.2	)
Impairment charges from subscriber disconnects		(15.5	)		(14.0	)
Amortization of deferred revenue		9.5			9.3
Profit from recurring services		59.5			51.5
Adjusted cash invested in new subscribers		(59.0	)		(62.8	)
Deferred revenue from new subscribers (current year receipts)		(8.6	)		(10.3	)
Deferred subscriber acquisition costs (current year payments)		4.9			5.5
Security system capital expenditures(a)		40.0			42.3
Brand Introduction(b)		(7.9	)		(1.1	)
Investment in new subscribers		(30.6	)		(26.4	)
Interest income (expense)		—			0.1
Provision for income taxes		(11.4	)		(10.0	)
Net income	$	17.5		$	15.2

(a) Amount excludes non-security system capital expenditures of $2.1 million and $4.9 for the three months ended March 31, 2010 and 2009, respectively.

(b) Brand Introduction expenses are excluded from adjusted cash invested in new subscribers.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

Cash flows from operations include cash received from monthly recurring revenue and upfront installation fees received from customers less cash costs to monitor subscribers (including cash corporate costs and cash taxes paid) and certain costs, principally marketing and selling costs, associated with new customer installations. Cash used in investing activities is primarily spent on capital expenditures consisting of equipment, labor, and overhead costs incurred to install security systems for new subscribers and on costs to purchase newly installed security systems from authorized dealers.

Summary Cash Flow Information

The following table shows selected information from our statement of cash flows for the periods presented.

	March 31,
(In millions)	2010			2009
Cash flows from:
Operating activities	$	69.6		$	66.6
Investing activities		(42.1	)		(47.2	)
Cash flows available for financing activities	$	27.5		$	19.4
Financing activities	$	0.8		$	—

Three Months Ended March 31, 2010 compared to the Three Months Ended March 31, 2009

Cash Flow from Operating Activities

Operating cash flow increased by $3.0 million to $69.6 million in the three months ended March 31, 2010 from $66.6 million in the prior comparable period, primarily due to the positive effects of a larger subscriber base, partially offset by Brand Introduction costs.

Cash Flow from Investing Activities

Investing cash outflows decreased by $5.1 million to $42.1 million in the three months ended March 31, 2010 from $47.2 million in the comparable prior period. Non-security system capital expenditures decreased to $2.1 million in the three months ended March 31, 2010 compared to $4.9 million in the comparable prior period primarily due to the expansion of, and improvements to, our facilities and upgrades in telecommunication and computer equipment made in the prior period. Capital expenditures for security systems decreased by $2.3 million to $40.0 million in the three months ended March 31, 2010 relative to the comparable prior period. The majority of our capital expenditures are for equipment, labor, overhead costs incurred to install security systems for new subscribers, and costs to purchase new sites from authorized dealers. The average capital expenditure per new customer site, including new sites installed for existing customers who relocated, increased by $114 to $1,003 in the three months ended March 31, 2010 from $889 in the comparable prior period due primarily to a change in the ratio of security assets acquired from dealers to security assets installed by Company field offices (security assets acquired from dealers have higher average capitalized costs) and an increase in the installation of wireless product.

Cash Flow from Financing Activities

During the three months ended March 31, 2010, financing activities were minimal and consisted of proceeds from stock option exercises.

Debt Obligations

In October 2008, we entered into a credit agreement (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) that provides for a $75 million unsecured revolving credit facility provided by a bank group led by JPMorgan Chase Bank, N.A (the “Credit Facility”). A portion of the Credit Facility, up to $15 million, may be used to issue letters of credit. Additionally, the Credit Facility has an expansion feature providing an option to increase the commitment by up to $50 million, under certain conditions. For the three months ended March 31, 2010, no borrowings have been made under the Credit Facility, but we have used a portion of our capacity under the Credit Facility to issue letters of credit totaling $4.3 million. See Note 6 – Credit Agreement to the condensed consolidated financial statements for further information regarding the Credit Facility.

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Liquidity

With our available resources, we make substantial investments in new subscriber sites with the intention of recouping this investment and generating recurring cash flow over time. We believe our cash flows from operations will be sufficient to satisfy future working capital, capital expenditures, and financing requirements for the foreseeable future. However, our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures, and other business and risk factors described elsewhere in this Form 10-Q.

In February 2009, the U.S. Congress passed and the President signed a stimulus package that contained a provision for bonus depreciation for federal income tax purposes on certain types of capital assets placed in service in 2009. This provision substantially reduced our requirement to make federal tax payments during 2009, deferring cash payments for most of our 2009 tax liability into subsequent years, beginning in 2010.

Balance Sheet Arrangements

In connection with the Spin-off, BCO agreed to indemnify us for all liabilities related to BCO’s former coal operations and certain tax liabilities under the Tax Matters Agreement (“TMA”). Refer to Note 8 – Commitments and Contingent Liabilities for further information regarding indemnification of BCO’s coal liabilities and Note 4 – Income Taxes in our unaudited condensed consolidated financial statements for further information about the TMA.

Aggregate information about our obligations and commitments to make future payments under contractual or contingent arrangements was disclosed in our Form 10-K.

Critical Accounting Policies and Recently Adopted Accounting Standards

Management’s discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates estimates used, including those related to revenue recognition, security system capitalization, useful lives of security systems, deferred subscriber acquisition costs, impairment of security systems, the allowance for doubtful accounts, and income taxes. Actual results may differ from these estimates under different assumptions or conditions.

There have been no changes in our critical accounting policies nor have we adopted any new accounting standards during the three months ended March 31, 2010. For further discussion of the judgments management makes in applying its accounting policies, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our quantitative and qualitative disclosures about market risk discussed in our Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the oversight of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is involved in various lawsuits and claims in the ordinary course of business. The Company has recorded accruals for losses that are considered probable and reasonably estimable associated with these matters. The Company believes that the ultimate disposition of these matters will not have a material adverse effect on its liquidity or financial position; however, losses from these matters or changes in estimates of losses for these matters may result in income or expense in any one accounting period that is material in comparison to the earnings of that period.

In April 2009, a Michigan state circuit court jury rendered a verdict against the Company for $4.2 million pertaining to claims made by a terminated employee of the Company. On July 7, 2009, the trial court entered judgment in favor of the plaintiff for $4.7 million. This amount included approximately $0.5 million in pre-judgment interest and attorney fees. After post-trial proceedings, on September 25, 2009, the trial court entered a revised judgment in the amount of approximately $3.5 million. The amount of the revised judgment has been included in other accrued liabilities as of March 31, 2010. On October 16, 2009, the Company filed an appeal seeking reversal of the judgment or in the alternative a new trial, based on various alleged points of error by the trial court. In connection with the appeal, the trial court ordered a stay of execution on the judgment which requires the Company to post an appeal bond. The Company has filed its initial appeal brief and a reply to the plaintiff’s brief but no date has yet been set for oral argument.

Item 1A. Risk Factors.

There have been no material changes to the risk factors discussed in our Form 10-K.

Item 6. Exhibits.

The exhibits required to be furnished pursuant to Item 6 are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by reference.

BRINK’S HOME SECURITY HOLDINGS, INC.

EXHIBIT INDEX

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated as of January 18, 2010, by and among Brink’s Home Security Holdings, Inc., Tyco International Ltd., Barricade Merger Sub, Inc. and ADT Security Services, Inc. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed January 19, 2010)
2.2	Amendment No. 1 to the Agreement and Plan of Merger, dated as of March 22, 2010, by and among Brink’s Home Security Holdings, Inc., Tyco International Ltd., Barricade Merger Sub, Inc. and ADT Security Services, Inc. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed March 22, 2010)
10.1	First Amendment, Limited Consent and Waiver to Credit Agreement, between the Registrant, the Lender’s party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, and Wells Fargo Bank, N.A. as Syndication Agent, Dated February 17, 2010. (Incorporated herein by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 10-K filed February 24, 2010)
31.1	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Robert B. Allen
31.2	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Stephen C. Yevich
32.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Robert B. Allen
32.2	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Stephen C. Yevich

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Brinks Home Security Holdings, Inc.
By	/s/ Stephen C. Yevich
	Stephen C. Yevich
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: April 28, 2010

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